Economic growth slowed significantly at the beginning of the year. In the last three months of 2021, the US gross domestic product (GDP) – a broad measure of the economy – grew by 1.7% or 6.9% on an annual basis. The Commerce Department said the slowdown was caused by rising imports and declining investment in private stocks, exports, federal government spending and state and local government spending. Consumer spending, the largest component of the US economy, grew by 0.7% in the first quarter – at an annual rate of 2.7% – despite the impact of the Omicron wave on the coronavirus. The latest report was worse than expected by economists and came as the war in Ukraine sparked rising oil prices that continue to plague the economy and before China imposed a new lockdown on the coronavirus that could exacerbate supply chain problems. . Paul Ashworth, chief US economist at Capital Economics, described the decline as “unexpectedly serious”. However, he said it was unlikely to deter the Federal Reserve from raising interest rates as it struggles to cope with rising inflation. The Fed raised interest rates in March as inflation hit a 40-year high of 7.9%. It meets next week and is expected to raise interest rates again. Fed Chairman Jerome Powell has suggested that the central bank could raise interest rates by 0.5 percentage points, double the March rise. “The unexpectedly sharp 1.4% year-on-year decline in GDP growth in the first quarter is unlikely to stop the Fed from raising interest rates by 50 basis points next week, as officials point to Omicron’s temporary impact and “They point to the power of underlying demand,” Ashworth wrote in a note to investors. The sudden drop in growth comes as other sectors of the US economy remain strong. Employers added an average of 600,000 new jobs a month over the past six months, and the unemployment rate fell to 3.6% in March, close to pre-pandemic lows.
